Ppt on strategic management by neha soni
-
Upload
gd-rungta-college-of-sci-tech-mgmt-department -
Category
Leadership & Management
-
view
45 -
download
2
Transcript of Ppt on strategic management by neha soni
Strategy Formulation
Strategies for Growth and DiversificationBy Neha Soni
Identifying Growth Strategies
Define the industryAnalyze options for growth
What Is Our Industry?What Is Our Industry?Defining the industry in new ways can present new opportunities.Examples: Disney IBM
Business-Level Strategies For Growth
Market Penetration
Strategy
Product Development
Strategy
Market Development
Strategy
Diversification Strategy
Existing
New
Domain
(i.e., Industry Market
Product/Service
Existing New
Product/Market Expansion: Product/Market Expansion: Scale StrategiesScale Strategies
Market PenetrationGoal: increase market share
Low risk/marginal returns
Every business does this
Market DevelopmentGoal: find new markets
Marketing expertise
Mature products/services
Product/Market Expansion: Scope Product/Market Expansion: Scope StrategiesStrategies
Product DevelopmentGoal: develop & introduce new products/services
Technical expertise
Growth of products/services
(Could Entail Related Diversification)
Diversification Goal: develop & introduce products/services to new or emerging markets
(Most likely Unrelated Diversification)
When Does Diversification When Does Diversification Make Sense?Make Sense?
Single business strategies have a number of advantages …
…but also a number of risks -- all one’s eggs in one basket
The logic: to spread corporate risk across multiple industries
to enhance shareholder value: SYNERGY (i.e., 2 + 2 = 5)
Diversification -- MotivesDiversification -- MotivesThe risks of single business strategies are more severe for management than for shareholders of publicly traded firms.Diversification may be motivated by management’s desire to reduce risk.Diversification only makes sense when it enhances shareholder value!
Tests For Judging Tests For Judging DiversificationDiversification
Attractiveness
Better-off
Cost of entry
Attractiveness Test
Is the target industry attractive? (Use 5-forces model to assess industry attractiveness)Does the diversification move fit with the grand strategy of the firm?
Better-off test
Does the diversification move produce opportunities for synergies? Will the company be better off after the diversification than it was before? How and why?
Cost of Entry Test
Is the cost of the diversification worth it?Will the diversified firm create enough additional value to justify the cost?
Methods for DiversificationMethods for Diversification
Acquisition of an existing businessCreation of a new business from within, e.g. a start-upJoint venture with another firm or firms
Acquisition Acquisition
Most popular approach to diversification
Quick market entry
Avoids entry barriers:
Technology
Access to suppliers
Efficiency / economies of scale
Promotion
Distribution channels
Major Acquisition IssueMajor Acquisition Issue
Acquire a successful company at a high price
orAcquire a struggling company at a bargain price
Start-UpStart-Up
Appropriate when:
You have time to launch
Market moves slowly
Internal entry costs lower than acquisition costs
You already possess necessary skills
Target industry is fragmented
Joint Ventures Joint Ventures
Pooling resources to spread risk
Achieving synergy from respective capabilities
Leveraging one another’s experience
Complicated; potential for conflicts if responsibilities, liabilities, & rewards not clearly delineated
Related Diversification Related Diversification
Businesses are distinct …
…but their value chains possess strategic “fit” in operations, marketing, management, R&D. distribution, labor, etc.
Therefore, they tend to exploit economies of scope
Tend to (historically) outperform unrelated diversifications
Unrelated Diversification Unrelated Diversification
No common linkage or element of strategic fit among SBUs -- i.e., no meaningful value chain interrelationships
Strategic approach: venture opportunistically into attractive industries that have solid potential for financial returns
“Conglomerates”
Dominant logic: spreads businesses risk over multiple industries, stabilizing corporate profitability (in theory)
Attractive Acquisition Targets Attractive Acquisition Targets for Unrelated Diversificationfor Unrelated Diversification
Companies whose assets are undervalued (buy’em & sell’em to realize capital gains)
Companies that are financially distressed (purchase at bargain price & turn’em around through injections of financial resources & managerial expertise)
Companies with bright prospects, but limited capital
Dominant logic: any company that can be acquired on good financial terms & offers good prospects for profitability is a good business for diversification
Drawbacks of Unrelated Drawbacks of Unrelated Diversification Diversification
Places enormous demands on corporate management -- shifting resources & making moves into unknown areas, etc.
Cannot capture synergies -- no strategic fit between SBUs
Few businesses have offsetting up-down cycles, so sales-profit stability is more mythical than real (& when EVERYTHING IS in a downturn, assets spread thin are sometimes consumed …)